Handling Cash Flow and Your Bank Relationship » Succeed As Your Own Boss


Social image of cash flow management and your banking relationshipPoor cash flow management can put you out of business. This article will cover various strategies for managing your cash flow, including securing bank loans and lines of credit, to start and grow your small business.

Financial monitoring

Want to know the key to managing cash flow? Keep up to date with your monthly statements.

On the fifteenth day of each month, you should have a current balance sheet, a profit and loss account (P&L) and a statement of cash flows. These will tell you what your business did in terms of revenue and expenses during the previous month. Your accountant should produce these three statements for you each month.

Being late in these procedures is dangerous to the health of your business. You need accurate financial information to make the right business decisions. For example, you need to know how much each job or product costs you and your profit margin on that particular job or product. You also need up-to-date financial information to keep track of your cost of goods sold.

Manage cash flow and track your bank finances

So that you don’t get lost in all the jargon, here are some basic definitions to keep in mind as your business progresses:

  • A cash flow statement are cash receipts less cash payments for a given period.
  • A balance sheet is a statement showing your company’s financial position at the end of an accounting period.
  • A profit and loss account is your company’s net income for the accounting period, also known as a profit and loss account or P&L.
  • The cost of goods sold (COGS) represents the cost of buying raw materials and producing finished products.

You should also keep track of your expenses with your budget. All the hassle you have had in making this budget will be wasted if you do not comply. In the fourth quarter of each year, you will need to prepare a budget and revenue projections for the following year. When preparing the budget, it is essential to review the projections for the previous year compared to the actual expenses. This information will help you create a more accurate budget and reduce costs out of control.

Strategies for managing cash flow

The goal of cash flow management is to keep your cash as long as possible. It’s vital that you don’t gain a reputation as a company that doesn’t pay its bills. At the same time, it is important to make sure that only priority bills are paid first. To do this, you need to develop a process for processing your accounts payable or trade invoices.

Manage your cash flow and your banking relationship strategies

Book a normal day to write checks, just like every other Friday. You should never cut a check because you have received a call from a seller, unless it is an emergency, and they have the goods or services your business needs. Always make sure your business is always effective enough to run. Find out how your customers process invoices. I have found that in general, the larger the customer, the worse the payment procedures. If you do not want to be delayed in receiving payment, try some of these techniques:

  • Get a signed purchase order. Never start working without a signed purchase order or deposit. Service companies should try to get a deposit of 25 to 50% in advance.
  • Negotiate extended payment terms. You need to contact your vendors and suppliers about how you can pay for them and not spend them on your cash flow. Try to get payment terms from 45 to 60 months.
  • Offer discounts to customers for prepayment. For example, sometimes accounts payable will be contacted and offer a faster payment with a 2 to 4% discount.
  • Pay in advance. If you have a long-term contract, try to negotiate payments a quarter in advance.
  • Requires EFT payments. Ask your corporate customers to pay by Electronic Funds Transfer (EFT). The funds are transferred directly to your company bank account, which means that your money is available five to ten days faster than a check sent by mail. There is usually a small fee for accepting electronic payments, but it is negligible.
  • Make sure you can accept all forms of payment. You must be able to accept cable payments, credit cards, PayPal, checks, and crypto in some cases.
  • Do not start employee benefits until 90 days have elapsed. Instead, reduce your initial labor costs by starting your staff with a “trial salary” for three to six months. Then delay the start of benefits until the end of the trial period.
  • Use invoice factoring. If you have cash, factoring is an option. This involves selling invoices or purchase orders to a company that offers you cash before your customer pays you for your goods or services. If you do, you will waive 10-15% of the amount, depending on the length of the loan. Use factoring only when you have a significant cash deficit that consumes your profit margin.

Secure a line of credit

Cash flow management is essential to the success of your small business. One way to do this is to secure a line of credit.

Manage your cash flow and line of credit for your banking relationship

Structured like your personal credit card, a line of credit allows you to use your money as needed to keep up to date with ongoing challenges. In addition, a line of credit is suitable for short-term temporary needs, such as the purchase of supplies and inventories and the financing of loans.

Here are some general tips for revolving lines of credit:

  • Pay off your credit line balance as soon as you can. Most lines of credit are revolving, allowing you to reuse funds as they are repaid. You do not want to accumulate a significant balance on a line of credit that you cannot pay.
  • Also, make several payments on the loan principal each year. Failure to do so may result in the bank classifying you as an “abuser of your line of credit.” If this happens, your line of credit will be canceled, which means that your credit is closed and transferred to a conventional term loan with a penalty interest rate.

Application for a revolving line of credit

Application and repayment requirements are generally much simpler for revolving lines of credit than for traditional loans. There are three types of revolving lines of credit:

  • One that is not guaranteed or only requires a personal guarantee
  • An insured with a guarantee
  • One that has an SBA guarantee

Cash flow management and your revolving line of credit bank

To apply for a revolving line of credit, you will normally need to provide two years of financial and operational information about your business and personal credit history.

It’s best to look for multiple options, align your ratings in advance, and consider all costs. Procedures for qualifying, using, and paying for a revolving line of credit vary between banks. Almost all banks charge annual start-up, transaction and usage fees. Some also require annual reviews of how you use your line of credit, and at will your bank may convert your line of credit into a term loan with automatic monthly payments.

A revolving line of credit offers the convenience of credit cards and many of the same risks. However, unlike loans, the interest rates on a revolving line of credit may vary depending on your market, your payment history, and your outstanding balance. Therefore, you should use these funds carefully to make sure that you do not abuse them.

Conventional bank loans

A conventional business loan may be more suitable for larger, long-term investments, such as new facilities, equipment, and other fixed assets.

When it comes to finding a bank loan or line of credit, the most important thing is your credit.

In the early stages of your business, your personal credit history will influence the bank’s decision to lend you more money than anything else. Banks are constantly reviewing lending practices and trying to minimize their risks. Particularly in times of economic uncertainty, this scrutiny is even deeper for a small business loan.

Application for a conventional bank loan

Find out your credit history before going to a financial institution to get a conventional loan. Make sure your credit information is accurate and up to date. If you can explain a late payment and know why it is in your credit file, give your bank a reasonable explanation. It could make a big difference to get approval. The first step in getting the money you need for your small business is to have a clean credit report.

Manage cash flow and your bank relationship by applying for the loan

There are other questions that the bank or other financial institution will ask you:

  • Is your business good? You have your business plan ready to show that your business is booming and will continue to be successful.
  • Do you know how much money you need? To be specific about how much money you need, why you need it, and how you plan to use the funds.
  • How will you repay the loan? Describe your plan to pay for the money.
  • What guarantees can you offer as security? Please specify what you are providing as a guarantee.

Getting bank loans and managing cash flow can be a challenge, but you can do it! If you need assistance, please contact your accountant for assistance. Do your research to determine which banks in your area make the most small business loans. Ask other business owners about their banking relationships and credit institutions to see if they can introduce you to their bankers. In many cases, it’s about who you know and who you know. The best advice I can share is to borrow money in advance and line up your lines of credit before you need them.

Do you have experience in managing cash flows in your business? If you have tips for managing cash flow and securing loans or lines of credit, please share them with our community below.





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